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Finance ?: Pension Payments?
Exactly 15 years from now Mr. J.R. Smith will start receiving a pension of $20,000 per year. The pension payments will continue for 10 years after retirement how much is the pension worth now if the money is worth 10% each year?
Answer: $29, 419
Interest (i)- .10
number of years (n)= 15
Future value (FV)
Payment (PMT)
20,000(FV)= PMT (1- (1-i)^n)/ i = 20,000= PMT (1-(1-.10)^10)/ .10
I Set it up like this but think it is wrong and I cant figure it out. I need someone to explain it in REALLY simple terms. I need a break down step by step, I think its the wrong formula.
1 Answer
- Don GLv 710 years agoFavorite Answer
The PV of an Annuity that begins in 15 years requires 2 steps. First get the PV of an Annuity, with N of 10, R of 10%, PMT of 20,000. Answer is 122,891. Note that is for an Ordinary Annuity that begins at T15. The first pension check will be received at the end of Year 15.
With a FV of 122,891 at T15, compute its PV. N of 15, R of 10%. Answer 29,419.
